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What Billions Can Buy

This article appeared originally in the Dallas Morning News, July 9, 2006.

Warren Buffett will soon give $30 billion to the Bill and Melinda Gates Foundation, whose chief domestic priority is education. If the money is used to promote free market reforms, it could change the world. But if it is poured into the existing system, Mr. Buffett himself may well outlive its effects.

Mr. Buffett and the Gateses are not the first to invest over a billion dollars in an ambitious school reform plan. Ambassador and TV Guide mogul Walter Annenberg trod this path during the 1990s, donating $500 million of his own money and another $800 million in matching funds to the “Annenberg Challenge.”

Mr. Annenberg’s goal was to create exemplary schools and districts that would act as models for the nation. He sought not incremental change, but systemwide transformation. He didn’t get it. Though some Annenberg Challenge projects showed promise, at least for a time, their impact on the system as a whole was negligible.

Why? The Wreck of the Annenberg can be attributed to a single fundamental flaw in the ambassador’s approach: he assumed that excellence, once demonstrated, would automatically be imitated.

It is easy to see why people who have amassed riches in the private sector might assume that successful models are always mimicked on a broad scale. That is what happens in competitive markets – including competitive education markets.

In The Wealth of Nations, Adam Smith praised the vigorous education industry of classical Athens, noting that: “The demand for … instruction produced, what it always produces, the talent for giving it; and the emulation which an unrestrained competition never fails to excite appears to have brought that talent to a very high degree of perfection.”

But the “emulation” that Mr. Annenberg was counting on never happened because there was no competition to “excite” it. Absent market forces, America’s public school monopoly has no mechanism by which excellence can be routinely identified, perpetuated and disseminated. As a result, there are myriad examples of public school excellence achieved and then lost.

Many readers will remember the 1988 film Stand and Deliver, celebrating real-life Los Angeles public school teacher Jaime Escalante. Mr. Escalante painstakingly built a rigorous math program at Garfield High School, enabling an unprecedented number of its low-income, mostly Hispanic students to take and pass the Advanced Placement calculus test.

His results were so good that many observers literally couldn’t believe them, and his students were forced to retake the test – on which they succeeded admirably once again.

In a competitive industry, a star like Mr. Escalante would have been rapidly promoted. He would soon have been designing curricula and training teachers for the benefit of thousands or even millions of children. He got threats and hate mail instead.

Because he successfully taught difficult material to classrooms of 50 or more students, Mr. Escalante drew the ire of his own colleagues. The local union contract stipulated that teachers could not serve more than 35 children per class, and Mr. Escalante’s achievements made that stipulation seem gratuitous and self-serving. The union balked, the threats started, and Mr. Escalante’s chairmanship of the math department was revoked in 1990. He left a year later.

The dysfunctional incentive structure of our public school monopoly is not only incapable of sustaining excellence, it actually works to crush it by setting the interests of school employees against those of students and parents.

Countless other exemplary teachers and model schools have failed to transform the system for this reason. So the $30 billion question is: Will Mr. Buffett and the Gateses pursue the same ill-fated course?

These are brilliant people, but there is reason to worry.

Echoing Walter Annenberg, Melinda Gates recently told a reporter that she “thought, if you get enough [small schools] going across the country, people will realize they’re good, and more and more will pop up.”

It’s a promising idea. In both atmosphere and test scores, small schools often enjoy an edge over institutions enrolling thousands of students. The problem is that, without altering the dysfunctional incentive structure that produced our current low-performing, Titanic-sized schools, the Foundation’s successes are apt to be isolated and short-lived. As Adam Smith argued and Mr. Annenberg demonstrated, you need competition to drive the spread of good ideas.

But if there is reason to worry, there is also reason for hope. What did the Gateses present Mr. Buffett as a thank-you for his unprecedented generosity? A copy of The Wealth of Nations.

So Mr. Buffett and the Gateses have a choice of futures. They can risk frittering away the largest philanthropic donation in history on a system they know, on some level, to be bankrupt, or they can work to introduce the same market forces that are responsible for growth and innovation in every other field – and that made classical Athens the wellspring of Western culture.